CANBERRA OBSERVED: Ex-Treasury chief slams Government and Opposition

News Weekly, April 18, 2009

Both the Government and Opposition will have to tell voters some unpalatable economic truths, former secretary to the federal Treasury John Stone has warned.

In a refreshing departure from the usual short-termism of federal politics and the commentariat, former Treasury secretary and National Party senator John Stone recently attempted to put the Rudd Labor Government's performance in perspective.

During a keynote speech to the H.R. Nicholls Society (soon to be published in the autumn edition of National Observer), Mr Stone described the current economic crisis as arguably unprecedented since Federation and carrying with it immense long-term consequences.

Dire situation

While not blaming the Rudd Government for the dire economic situation, Mr Stone says its policies are likely to make things worse.

He also said that the current recession is utterly unlike previous downturns when a government fiscal stimulus could be used to get things moving again.

"The real charge against the (Rudd) government is that, in addressing those depressive forces, its analysis has been defective and its actions have been as reckless as they have been unproductive (or even counter-productive)," he said.

Other governments, including those led by America's President Obama and Britain's Gordon Brown, were making similar mistakes, according to Mr Stone.

Not surprisingly, Mr Stone singles out the new Fair Work Act and the proposed Carbon Pollution Reduction Scheme (CPRS) as disasters in the making, which will exacerbate the problems.

Mr Stone predicted that, in 18 months' time, unemployment and government debt could be double present levels, while business investment could collapse.

"Two years from now, Australians on average will be significantly poorer," he said.

"Many more of them will be unemployed ... many will be much less productively employed in one government spending program or another.

"Our gross domestic income will have suffered appreciably from the sharp fall in our terms of trade, and our national indebtedness to foreigners will be higher."

In these circumstances Kevin Rudd's hold on the Labor leadership may become precarious and Julia Gillard's prospects of become Prime Minister will rise considerably, according to the Stone analysis.

"(But) whether or not there is a change in its leadership before the next election, there is no doubt in my mind that, other things being equal, Labor could then be eminently beatable," Mr Stone said.

"There is just one problem - the present state of the Coalition parties in general, and their present leadership in particular."

In a damning indictment of Malcolm Turnbull's leadership, Mr Stone says the policies and key personnel he has surrounded himself with have no resemblance to the Howard team and philosophy which successfully held power for 12 years.

In fact, he argues, Mr Turnbull has "systematically trashed the Howard legacy".

Nevertheless, Mr Stone does not discount the possibility (though remote) of Mr Turnbull winning the next election, but believes the Coalition would improve its chances with a more electorally appealing leader.

Mr Stone believes a key failing of the Rudd Government is its refusal to level with the Australian people.

"Part of the Rudd Government's problem has been that, at the outset, neither Mr Rudd nor his Treasurer, Wayne Swan, could bring themselves politically to concede the quality of their inheritance," he said.

"Later, neither man could bring himself to utter the words budget deficit ... (and until recently), neither man could admit that Australia would suffer a recession.

"Australian voters are not children. They deserve the truth, even when it is as unpalatable as much of it will be over the next year or two."

Mr Stone's view is that the Federal Government (whether it is led by Mr Rudd, Ms Gillard, Mr Turnbull or someone else) will eventually have to acknowledge an unpalatable truth which so far eludes everyone.

This is, that once monetary and fiscal stimulus measures run their course to little effect, employment will have to be made profitable in order to restore prosperity.

In other words, the only clear course toward renewed profitability in the private sector will be slashing labour costs - which is short for cutting wages.

Other unnecessary imposts such as Native Title and the CPRS should also be ditched.

If Mr Stone is correct in his prognosis, Australia is heading for tumultuous political times ahead.